01 - MTC Org & Plant Acquisition

1.
Maintenance & the Industrial Organisation
Topics covered: Models for Industrial organisations & the maintenance function Total cost of maintenance How maintenance impacts the business Maintenance preconceptions Maintenance strategy review process
Dr Hari Agung Yuniarto JTMI UGM
h.a.yuniarto@ugm.ac.id
Why Do We Do Maintenance?
To preserve the functioning of our equipment When we can no longer do this economically, it should be replaced Maintenance is sometimes deemed as a means to an end --> a profit centre Vs a cost centre
Organisation as an Open System

Financial Climate, New Technology, Legislation
Raw materials, Energy Finance
Management System
Products, Waste, Safety, Reputation
Processing Plant
Physical Assets, manpower, spares

3
Dr Hari Agung Yuniarto JTMI UGM h.a.yuniarto@ugm.ac.id
Maintenance Function
Budget, New Technology, Company Procedures, Legislation
Management System
Information Finance Output, Reliability, Safety, Quality
Activities
Physical Assets, manpower, spares, skills

4
Maintenance Management System

Strategy & Policy
Objectives Constraints Resources Structures accountabilities
Feedback Loop
Organisation
Planning & Control
Job scheduling Job execution Provision of spares Use of technology
Management Information
Exception reporting Plant history file Trends Value of money analysis

Total Cost of Maintenance
Direct Costs Labour Spares Subcontractors EQUIPMENT
Indirect Costs
Excess downtime Lost sales Surplus equipment
TOTAL COST OF MAINTENANCE

6
Total Cost of Maintenance
Visible Hidden
Labour Materials Contracts Poor plant reliability and performance Wasted time through inefficient processes Poor teamwork and communication between functional groups
What are we in business for?
To be true to our guiding principles (or values) To survive and grow as an organisation This requires us to make some money
Making money is measured by:
Return on Investment
Profitability
Cashflow
How does maintenance affect these?
By reducing income By increasing costs By forcing expenditure to be made sooner By increasing the capital required
10
Return on Investment - ROI

Investment Income
Expenses
ROI =
11
Profit = Investment
Income Expenses Investment

Effect of Downtime on ROI
Return on investment = (Income Costs) / Investment
A change in downtime of a few percentage points has a major impact on return on investment
12
120m /year 80m / year 8m / year 2m / year
Return on Investment Du Pont Formula

40m / year 30m / year 10m / year
5m
. .
+
7m
0.25/ year
4m
2m
+
113m
120m
113m 13
Items in Total Cost
Maintenance budget Capital replacements Value of spares inventory Downtime Value of product inventory
Equipment efficiency Product quality Standby equipment Reduced throughput
14
The role of maintenance
To ensure that the plant and machinery under its care can satisfy the operational demands placed upon it at the lowest total cost Operational factors involve:
safe operation maximum availability of equipment achievement of required production speeds achievement of desired product quality achievement of required life
15
Maintenance preconceptions
Throwing money at a problem will somehow resolve it
Performance and costs have a fixed trade off
16
Preconceptions Lead To..
A large number of spare parts Having people who can react quickly to failures Excessive standby equipment The belief that spending money increases output Too much emphasis on preventive maintenance
17
Benefits of Successful Practices
Greater competitive advantage Improved return on investment and profitability Extended equipment lives A platform for continuous improvement
18
Maintenance on Boardroom Agenda
Lobby for maintenance to be seen as a strategic issue Link maintenance to competitive advantage Emphasise the indirect costs as well as the direct ones Show how good maintenance affects the balance sheet, profitability and capital programme Make the production director your best ally Talk Rp Rp Rp
19
Comparison with agreed Benchmarks for best practice Business review
Operations & Maintenance Strategy Review Process

Feedback of performance service levels & cost Team-based RCM On critical systems (Reliability Centred Maintenance) Review spares holdings balancing risk & cost
High ~ 10% Functional analysis to develop operational requirements of systems Criticality review using risk matrix
Specify tasks directly Med where experience, company ~ 30% rules or Industry best practice suggest the way ahead
Maintenance Tasks
Load tasks & spares Into Computer System
Execute Maintenance Programme
Low ~ 60%
Structure review Of tasks using the Pro-active monthly forum
Develop Organisation around tasks & skills
Guideline figures: Condition-based Planned preventive Design-out Run to failure Statutory
55% 20% 10% 10% 5%
Statutory requirements
20
Strategy Review 1
Gap Analysis
21
Strategy Review 2
11 well sites & 1 collection / loading site Daily output 95,000 barrels of oil, 970te of LPG and 2m m3 of natural gas
Functional analysis to develop operational requirements of systems
500m investment - commissioned 1990 Zero planned maintenance on rotating equipment
37 Large pumps & compressors 62 Medium sized 92 Small sized

>75kw <15kw & >75kw <15kw

22
Strategy Review 3
High ~ 10% Functional analysis to develop operational requirements of systems Criticality review using risk matrix Low ~ 60%
o o
Process criticality Capital cost Operating point Safety Operational reliability (history or generic)
Med ~ 30%
o o o o
23
Strategy Review 4
Team-based RCM On critical systems (Reliability Centred Maintenance)
Maintenance Tasks
Low ~ 60%
96 machines vibration monitored 166 machines oil analysed 96 machines run to failure
Planned maintenance on filters

24
Strategy Review 5
99.93% availability 150% design throughput 25% lower costs
Maintenance Tasks Load tasks & spares Into Computer System Execute Maintenance Programme
Team-based RCM On critical systems (Reliability Centred Maintenance)
Low ~ 60%
25
Complete Review Process

Feedback of performance service levels & cost Team-based RCM On critical systems (Reliability Centred Maintenance) Review spares holdings balancing risk & cost
Maintenance Tasks
Load tasks & spares Into Computer System
Execute Maintenance Programme
Low ~ 60%
Guideline figures: Condition-based Planned preventive Design-out Run to failure Statutory
55% 20% 10% 10% 5%
26
Thoughts Thoughts
There is no absolute level of maintenance You can choose how much to do Its about balancing risk & cost
27
A Balance
2. Plant Acquisition Policy
Topics Covered Life cycle costs Maintainability Building maintainability into designs Relationship between capital replacements & maintenance strategy
29
Plant Life Cycle

Acquisition
Operation Commission Installation Design Sanction Need
De-commission
Plant in use
Maintenance
30
Plant Life Cycle

Life Cycle Cost Profile

Capex Design Installation & Commissioning Opex
Operation & Maintenance
Sanction
31
Start Up
Closure
Life Stages
100%
% TOTAL LIFE COST COMMITTED
75%
OPERATION COMMISSIONING
50%
PROCUREMENT DETAILED DESIGN CONCEPTUAL DESIGN
25%
0% LIFE STAGES
32
Life Cycle Costs & Reliability
Life Cycle Cost Acquisition Cost Cost
Operational Cost
Reliability
33
Elements
Establish cost of ownership before buying: Cost of aquisition
o o o
Acquisition, price, delivery, design life Installation and commissioning Disposal, recycle or resale costs
Cost of operation
o o o o
Operation, fuel/energy usage Performance Insurance Maintenance labour, contractors and spares costs
34
Elements Continued
Cost of equipment should be kept and analysed throughout the whole of its life
Maintainability and reliability of equipment should be considered carefully in any comparisons as this has a strong effect on downtime
o Access and handling o Modular replacement o Fault diagnostic aids o on-line tools, fault trees etc.
35
Benefits
Trade-offs between capital and revenue explored Plant availability optimised from start up Production and maintenance fully involved in new projects Conscious decisions taken about the maintenance requirements Asset management strategy is aligned with business needs
36
Life Cycle Service Contracts
Maximum leverage is when you purchase a major piece of equipment Agreed supply spares and service requirements in one negotiation Dont let your supplier deal with separate parts of your organisation i.e. design for new supply, maintenance for service and purchasing for spare parts
37
Case Study Example
Gas turbines for Oil & Gas industry Purchase contract specifies reliability requirements Supplier holds stocks of spare parts at his expenses Suppliers service department carries out overhaul activities Re-blading intervals agreed
38
The Value of Money
Would you rather have $1m today or next year? Why? The time when we have money available must be taken into account This is done by a discount rate: the value of money is discounted if we only see it in the future Your finance department will be able to give you the figure to apply in your company
39
Choices Based on Life Cycle Costs
Glass Furnace A 15 Year Life Purchase cost 1.2m Energy 100k / year Maintenance 30k / year Refurbishment 50k every 5 years Cost of quality 10k / year Rising by 1k every year after refurb.
Microsoft Excel Worksheet
Glass Furnace B 20 Year Life Purchase cost 1.4m Energy 80k / year Maintenance 25k /year Refurbishment 60k every 10 years Cost of quality 5k / year Rising by 1k every year after refurb.
40
Life Cycle Example Family Car
Factors:
Purchase cost Running cost Maintenance Insurance Depreciation Financing cost
What is the best life cycle replacement strategy?

41
Investigate Options
Annual Cost
5 4 3 2 0 1 1 2 3 4 5
Years Kept
Age When Purchased

42
Selected Strategy
Buy three year old cars
Keep them for three years
Then sell them
43
On going monitoring
Track running, maintenance costs & reliability
Trim the 3-3 strategy as required: Sell a poor car early Keep a reliable, low running cost car longer
44
Life Cycle Asset Management
Secret is to do the assessment at the right level
Neither too high nor too low
At the level of a plant process
45
Life Cycle Asset Management

2 Operations 5 7
& Maintenance Strategy
Opex, Capex & Experience
Business Requirements
Feedback of Costs, Condition & Performance
6 Optimum
RCM Studies ~ 40 off
Life Cycle Cost Modelling
Capex / Opex Repair / Replace Strategies
Asset Base
Computer Tools 46
4
1,100 1,090 1,080 1,070 5 1,060 1,050 2 1,040 0 1 1 2 3 4 5 3 4
10
Regulatory Requirements
Opex / Capex & AMP Plan

Repair / Replace Considerations

Cumulative Cost
Shortcut to INDEX.HTM.lnk
Microsoft Excel Worksheet
Repair Limit Age

47
Life Cycle Cost Issues
Requires a fundamental shift in the culture of an organisation
Must have top-level support
Non-cyclical business environment required
48
Getting Started
Establish vital key life costs your assets e.g. for Water Industry pumps these might be purchase price, electricity consumption & maintenance cost Monitor only these costs on your largest assets Use rules of thumb & guidelines for the rest Involve operations & maintenance personnel in the conceptual design stages of projects Explore both revenue & capital solutions to problems Use life cycle principles when purchasing equipment covering:
New supply, maintenance, services, up-grades & spare parts
Microsoft Word Document
49

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1.

Maintenance & the Industrial Organisation

Dr Hari Agung Yuniarto JTMI UGM

Dr Hari Agung Yuniarto JTMI UGM

Organisation as an Open System

Raw materials, Energy Finance

Physical Assets, manpower, spares

Physical Assets, manpower, spares, skills

Maintenance Management System

Planning & Control

Job scheduling Job execution Provision of spares Use of technology

Exception reporting Plant history file Trends Value of money analysis

Dr Hari Agung Yuniarto JTMI UGM

Total Cost of Maintenance

Direct Costs Labour Spares Subcontractors EQUIPMENT

Excess downtime Lost sales Surplus equipment

TOTAL COST OF MAINTENANCE

Total Cost of Maintenance

Dr Hari Agung Yuniarto JTMI UGM

What are we in business for?

Dr Hari Agung Yuniarto JTMI UGM

Making money is measured by:

Dr Hari Agung Yuniarto JTMI UGM

How does maintenance affect these?

Dr Hari Agung Yuniarto JTMI UGM

Return on Investment - ROI

Income Expenses Investment

Dr Hari Agung Yuniarto JTMI UGM

Effect of Downtime on ROI

Return on investment = (Income Costs) / Investment

Dr Hari Agung Yuniarto JTMI UGM

120m /year 80m / year 8m / year 2m / year

Return on Investment Du Pont Formula

Items in Total Cost

Equipment efficiency Product quality Standby equipment Reduced throughput

Dr Hari Agung Yuniarto JTMI UGM

The role of maintenance

Dr Hari Agung Yuniarto JTMI UGM

Throwing money at a problem will somehow resolve it

Performance and costs have a fixed trade off

Dr Hari Agung Yuniarto JTMI UGM

Preconceptions Lead To..

Dr Hari Agung Yuniarto JTMI UGM

Benefits of Successful Practices

Dr Hari Agung Yuniarto JTMI UGM

Maintenance on Boardroom Agenda

Dr Hari Agung Yuniarto JTMI UGM

Comparison with agreed Benchmarks for best practice Business review

Operations & Maintenance Strategy Review Process

Load tasks & spares Into Computer System

Execute Maintenance Programme

Structure review Of tasks using the Pro-active monthly forum

Develop Organisation around tasks & skills

Guideline figures: Condition-based Planned preventive Design-out Run to failure Statutory

55% 20% 10% 10% 5%

Dr Hari Agung Yuniarto JTMI UGM

Comparison with agreed Benchmarks for best practice Business review

Dr Hari Agung Yuniarto JTMI UGM

Comparison with agreed Benchmarks for best practice Business review

Functional analysis to develop operational requirements of systems

500m investment - commissioned 1990 Zero planned maintenance on rotating equipment

37 Large pumps & compressors 62 Medium sized 92 Small sized